For executives, boards of trustees, and fiduciaries in higher education, managing risk is crucial for effective governance. Total Cost of Risk (TCOR) encompasses all expenses related to risk management, as well as the expenses from litigation, regulatory fines, and other damages, and represents a major financial commitment that can strain budgets and divert resources from an institution’s core mission. With rising insurance costs and increasingly complex risks, optimizing TCOR should become a strategic priority.
Effective TCOR management includes the utilization of tools like increasing risk retentions, captive insurance companies, and aligned assurance efforts. By investing resources in their assurance functions, institutions can reduce costs, eliminate redundancies, and align risk management with their mission, ensuring long-term resilience. While investing in risk management is essential for a successful university, unmanaged TCOR can limit funding available to support the university’s mission.
By investing resources in their assurance functions, institutions can reduce costs, eliminate redundancies, and align risk management with their mission, ensuring long-term resilience.
What Is the Total Cost of Risk?
Total Cost of Risk is a comprehensive measure that includes all costs related to risk management (risk financing and risk mitigation) within an organization. This covers direct costs (insurance premiums, deductibles, and claims) and indirect costs (administrative expenses, lost productivity, and reputational damage). These costs can be substantial and are influenced by external factors like legal fees, environmental health and safety, emergency management, compliance, and internal audits. By calculating and managing TCOR, organizations can better understand their overall risk exposure and make more informed decisions about risk mitigation strategies.
These components can collectively cost millions each